Catch-All Phrase

NOT A DAY goes by when some Wall Street firm isn't citing geopolitical risk as a reason for market gyrations. Indeed, financial commentators have increasingly invoked "geopolitical risk" to explain market volatility.

Monetary policy makers started the trend back in September, when the Federal Open Market Committee identified "heightened geopolitical risk" as a factor producing economic uncertainty. The European Central Bank followed suit in December, pointing to "geopolitical tensions" as an impediment to investment and consumption.

And last month, in testimony before Congress, Federal Reserve Chairman Alan Greenspan reiterated that "geopolitical risk is hanging very heavily on economic decisionmaking and hence economic growth."

The term was so prevalent that Scowcroft Group, a business advisory firm headed by former National Security adviser Brent Scowcroft, this year put together a Geopolitical Risk Index, which charts the number of media articles referencing geopolitical risk back to 2001. "It was inspired by the the Economist's R-word index," says index co-inventor Joel Shin of Scowcroft Group.

The first real spike in the index, to 30, came last summer. It was driven by heightened tension in Israel; risk of an India-Pakistan war; and increased concern about terrorism, including the use of radioactive "dirty bombs" here. Amid talk of war in Iraq, media mentions average 120 a month.

Of course, Wall Street's looking to cash in on worry. Geo-risk is now so prevalent in business that trading desks scramble to "hedge" out as much of the concern as possible. Citigroup's Salomon Smith Barney last month put together an index to quantify geopolitical concerns. It includes: Nymex front-month light sweet crude oil implied volatility, gold stock prices, OEX volatility, the U.S. dollar, two-year U.S. Treasury yields and defense stock prices. "We use the Geopolitical Risk Index as a framework to recommend trades for investors looking to hedge against geopolitical event risk," the firm said in a note to clients. If only it were that easy.

-- Erin E. Arvedlund

Dow Indicator

Dow Industrials

7891.08

- 127.03

Dow World Index

133.87

- 1.50

30-Yr T-Bonds

4.67

- 0.18

The Real Deal?

Iraq said it would begin destroying its Al Samoud 2 missiles over the weekend, as the U.N. has demanded. The chief weapons inspector, Hans Blix, said that if Iraq carries out its pledge, it will be "a very significant piece of real disarmament." The White House dismissed the move as "deception," as did its ally, Britain. The Security Council has been weighing rival proposals, one to authorize war from a U.S.-led group, and one from France and Germany seeking more time. Russia said it may veto a resolution.

A Bit of Cheer

The U.S. economy, as measured by gross domestic product, grew in the fourth quarter at a revised 1.4% rate, twice as fast as originally reported. The Chicago purchasing managers report and University of Michigan's consumer sentiment index performed better than economists had expected.

A Blow for American

Standard & Poor's cut the ratings on
American Airlines
and its AMR parent deeper into junk status, and said the airline could file for bankruptcy protection by midyear. American said the downgrade reflected geopolitical concerns and industry weakness.

Oily Mess

U.S. crude oil prices neared $40 a barrel, the highest since the Gulf War, and OPEC said increased output can no longer stem the price rises. Natural-gas futures prices soared 65% in one day.

Meanwhile, in N. Korea

North Korea restarted a nuclear reactor that could be used to make nuclear weapons, and accused the U.S. of triggering a nuclear crisis. The move seemed aimed at pressuring the U.S. into a nonagression treaty. The U.S. says the U.N. should handle the issue.

Food Fight

The U.S. sued
Smithfield Foods,
seeking a $5.4 million penalty for failing to disclose stock purchases it made of
IBP
were a prelude to a takeover bid. Smithfield said it believes the suit has no merit.

Accounting Challenged

Shares of
Ahold,
the Dutch supermarket retailer, got creamed after it confirmed the SEC is investigating accounting irregularities at the world's third-largest food retailer. Earlier, two top executives resigned after Ahold said it had overstated earnings by at least $500 million in the past two years.

Indictment Beat

A former
Qwest
executive pleaded not guilty to U.S. charges he and three others schemed to inflate revenues. The others are expected to plead not guilty soon. The probe is continuing. Meanwhile, two former
Kmart
executives were indicted on securities fraud, charged with inflating earnings at the bankrupt retailer. The pair's attorney denied they engaged in fraud.

Ups and Downs

Investors vacillated between cheer over economic news and fear over possible war. Though all three equity market gauges rose Friday, the Dow Jones Industrial Average lost 1.6% on the week, while the Nasdaq fell 0.9%, and the S&P 500 Index was off 0.8%.

No Go on Telco

A federal panel rebuffed the initial plan of two Asian companies,
Hutchison Whampoa
and Singapore Technologies Telemedia, to take over Global Crossing. The panel cited concerns over one of the company's links to China, The Wall Street Journal said.

Early Warning System?

Frank Quattrone, a Credit Suisse First Boston investment banker, was warned about three probes before he urged others to destroy files, The Wall Street Journal reported. A spokesman for Quattrone didn't comment on the e-mail exchange, but said he has denied doing anything improper.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.